Purchase Solution

# Return on stocks, bonds & preferred stock

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1. Suppose a stock had an initial price of \$84 per share, paid a dividend of \$2.25 per share during the year, and had an ending share price of \$92. What was the dividend yield? What was the capital gains yield? What was the total return?
2. You bought one of Acme Corporation's 8 percent coupon bonds one year ago for \$960.00. These bonds make annual payments and mature 5 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 7.4%. If the inflation rate was 3.4% over the past year,,what would be your total real return on investment?
3. You bought a share of 8.5% preferred stock for \$103.00 last year. The market price for your stock is now \$98.50. What is your total return for last year?
4. A stock has an expected return of 12 percent, its beta is 1.3, and the risk-free rate is 4 percent. What must the expected return on the market be?

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The solution provides answers to 4 questions on returns on stocks, bonds, preferred stock and market.

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1. Suppose a stock had an initial price of \$84 per share, paid a dividend of \$2.25 per share during the year, and had an ending share price of \$92. What was the dividend yield? What was the capital gains yield? What was the total return?
Initial price= \$84.00
Dividend= \$2.25
Ending price= \$92.00

Dividend yield= 2.68% =2.25/84
Capital gains yield= 9.52% =(92-84)/84
Total return= 12.20% =(2.25+(92-84))/84

Dividend yield= 2.68%
Capital gains yield= 9.52%
Total return= 12.20%

2. You bought one of Acme Corporation's 8 percent coupon bonds one year ago for \$960.00. These bonds make annual payments and mature 5 years from now. Suppose you decide to sell your bonds today, when the required return on the ...

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